Eurozone business activity grows at fastest pace in 7 years

Eurozone economic activity grew at its fastest pace in nearly seven years in December according to a survey of the region's purchasing managers, published on Thursday.

Thanks to strong economic performances from core eurozone members Germany and France, growth in new orders in manufacturing and services, the composite purchasing manager index (PMI) rose to an 82-month high in December.

The composite index rose to 58 from 57.5 in November, surpassing expectations of a dip to 57.2 in the final month of the year.

Manufacturing

The manufacturing index rose to a record high of 60.6, up from November's 60.1 and beating analysts' expectations of a dip to 59.8.

Growth in new orders expanded at the fastest pace since April 2000 was buoyed by export orders rising a rate only marginally below November's record high.

Job creation remained robust with a record gain in factory payrolls, but backlogs in uncompleted orders underlined the strength in demand.

Chart courtesy of Pantheon Macroeconomics

Services

The service sector PMI rose to an 80-month high of 56.5 in December, up from 56.2 in November and beating forecasts of a dip to 56.

Growth of new business in the services sectors was at the joint highest rate in more than a decade thanks to a "broad-based" improvement in demand, IHS Markit, the compiler of the report, said.

Inflation

Both sectors reported higher prices as strong demand enabled firms to pass on higher costs to customers, as average input costs rose sharply across the spectrum of manufacturing and services.

Markit reported that the overall rate of inflation dipped in December, but remained among the highest seen in the past six-and-a-half years.

Market reaction

Chris Williamson, chief business economist at IHS Markit, said: "The eurozone economy is picking up further momentum as the year comes to a close, ending its best quarter since the start of 2011.

“France has been the big surprise this year, rapidly pulling out of its malaise to help shift the eurozone expansion into a higher gear,” he added.

"A strong finish to a great year for the eurozone economy," said Claus Vistesen at Pantheon Macroeconomics.

He continued: "New orders and output growth are rising strongly across both sectors, helping to lift employment. Work backlogs remain high, indicating that the trend in employment growth will continue."

The euro, however, was unable to keep pace with a rallying dollar. The single currency dipped 0.05% to €1.1821. Sterling was also stronger, gaining 0.27% to €1.1378.